National Rural Housing Coalition

1331 G Street, NW 10th Floor ∙ Washington, DC 20005

A Review of Federal Rural

Rental Housing Programs,

Policy and Practices

April 2017

National Rural Housing Coalition

1331 G Street, NW 10th Floor ∙ Washington, DC 20005

(202) 393-5225 ∙ (202) 393-3034 fax

www.ruralhousingcoalition.org

This report was prepared by Rapoza Associates on behalf of the National Rural Housing Coalition (NRHC).

Audrey Johnston served as the principle author.

NRHC is a national membership organization comprised of rural community activists, public officials, and

nonprofit developers that fights for better housing and community services for low-income, rural families.

NRHC is managed by Rapoza Associates, a public interest lobbying, policy analysis, and government relations

firm located in Washington, D.C. that specializes in providing comprehensive legislative and support services to

community development organizations, associations, and public agencies.

Acknowledgements

NRHC would like to thank PNC Bank for its generous support of this report.

In preparing this report, NRHC benefitted from the advice and participation of its Board of Directors, many of

whom are working to develop and preserve rural rental housing. We also appreciated the participation of USDA

Rural Housing Services staff and rural rental housing experts who participated in a full-day discussion of rental

housing issues and were available to answer our questions. Finally, NRHC would like to thank David Lipsetz

for reviewing and editing this report.

National Rural Housing Coalition

Board of Directors 2017

Executive Committee

Members of the Board

Suzanne Anarde John Fowler David Moore

Merten Bangemann-Johnson Denise Galatas Joe Myer

Mitzi Barker Rose Garcia Roger Nadrchal

Lee Beaulac Neal Gibson John Niederman

Toby Best Rick Goodemann Retha Patton

Brad Bishop Chip Halbach Earl Pfeiffer

Veronica Bitting Kim Herman Christopher Ptomey

Julie Bornstein Linda Hugo Lee Reno

Tom Carew Russ Huxtable Blair Sebastian

Peter Carey David Jackson Claudia Shay

Michael Carroll Karen Jacobson Bill Simpson

Tom Collishaw Bryan Ketcham Greg Sparks

David Dangler Jim King Robert Stewart

Kim Datwyler Dennis Lalor Vickey Stratton

Jeanette Duncan John Linner Leslie Strauss

Tanya Eastwood Jill Lordan Stephen Sugg

Joan Edge Moises Loza Paul Turney

Sherry Farley Tom Manning-Beavin Kyle White

Michael Feinberg Selvin McGahee Rob Wiener

Dave Ferrier Norm McLoughlin John Wiltse

Raymond Finney Scott McReynolds Lesli Wright

Eileen Fitzgerald Sarah Mickelson Mary Ann Ybarra

E.G. Fowler Nick Mitchell-Bennett

Marty Miller, President Kathleen Tyler, First Vice President

Hope Cupit, Second Vice President Laura Buxbaum, Secretary

Stan Keasling, Treasurer Karen Speakman, Officer

Andy Saavedra, Officer Robert A. Rapoza, Executive Secretary

Table of Contents Executive Summary ................................................................................................................................................ 1

Background ............................................................................................................................................................. 2

Introduction ......................................................................................................................................................... 2

Overcoming Barriers to Affordable Rental Housing in Rural America.............................................................. 2

Poor Quality Housing .......................................................................................................................................... 3

Lack of Access to Financing ............................................................................................................................... 3

Rural Rental Housing Programs and Challenges .................................................................................................... 4

Introduction ......................................................................................................................................................... 4

Section 515 Rural Rental Housing Loans ........................................................................................................... 4

Introduction ..................................................................................................................................................... 4

Section 515 Funding Decline, LIHTC and Initial Preservation Policy ........................................................... 5

2004 USDA Comprehensive Report Findings, Response and the MPR Program .......................................... 7

2016 USDA Comprehensive Report ............................................................................................................... 8

Housing Assistance Council August 2016 Report .......................................................................................... 8

Section 514/516 Farm Labor Housing Loans and Grants ................................................................................... 9

Introduction ..................................................................................................................................................... 9

Chronic Underfunding of Farmworker Housing ........................................................................................... 10

Section 521 Rental Assistance .......................................................................................................................... 10

USDA and Congressional Action ......................................................................................................................... 11

USDA Unnumbered Letter................................................................................................................................ 11

Fiscal Year 2017 Senate Appropriation Provisions .......................................................................................... 12

Case Studies .......................................................................................................................................................... 13

Greystone Affordable Housing Initiatives LLC ................................................................................................ 14

Southwest Minnesota Housing Partnership....................................................................................................... 15

Findings and Conclusion....................................................................................................................................... 17

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Executive Summary

In late 2015, the National Rural Housing Coalition (NRHC) convened for its annual business meeting. At the

meeting, members of the NRHC Board of Directors (Board) engaged in a lengthy discussion on the U.S.

Department of Agriculture’s (USDA) rental housing programs. Members of the Board, many of whom are

leaders in rural housing and community development, determined that NRHC should further explore USDA’s

multifamily housing portfolio. The purpose of this effort would be to inform the Board, and the public in

general, about preservation issues, as well as to present the business opportunities for nonprofit involvement in

the solution.

On October 4, 2016, NRHC held a first-of-its kind gathering that brought together experienced industry

members for a daylong session devoted to exploring federal and state rural housing programs and policies and

the examination of examples of successful preservation strategies for USDA’s rural rental properties. Presenters

and attendees included nonprofit housing developers, state housing finance agencies and federal officials

charged with administering rural multifamily housing programs.1

The meeting came at an important moment. A 2016 report commissioned by USDA estimated that the 20-year

cost to maintain the existing portfolio of rural rental developments topped $5 billion.2 In addition, an increasing

number of Section 515 mortgages are maturing, which threatens the availability of affordable housing in many

rural communities. USDA has made a number of improvements in policies and procedures for the preservation

of rural rental housing. Yet, the most significant challenges remain for owners and operators trying to maintain

rural rental housing.

While NRHC released a whitepaper that summarizes the conference proceedings and findings, the purpose of

this report is to serve as a detailed review of the programs, policies and practices discussed at that one-day

meeting, and provide additional information on barriers to improving rental housing in rural America in era of

limited federal resources.3 This paper includes an overview of federal policy, programs and problems related to

preserving the existing approximately 400,000 units of rental housing financed by the USDA Rural

Development (RD) and its Rural Housing Service (RHS).

There are several key federal programs that support the development and preservation of affordable rental

housing in small towns and rural communities: (1) USDA’s Section 515 Rural Rental Housing Direct Loans

(Section 515), (2) Farm Labor Housing Loans and Grants (Section 514/516), (3) Rural Rental Housing

Assistance (Section 521), (4) the Multifamily Preservation and Revitalization (MPR) Demonstration Program,

(5) the Low-Income Housing Tax Credit (LIHTC), and the Department of Housing and Urban Development

(HUD) Section 8 program. While each of these programs play a critical role in overcoming the unique barriers

to affordable rental housing, funding shortfalls have hindered their impact.

There remains a measurable demand for rental apartments in rural places across the United States. There is not,

however, an adequate supply. Section 515 Rural Rental Housing Loan program was once the principle source of

financing for new rural rental housing development. Since its peak in the mid-1980’s, program levels have been

cut by more than 97 percent from $954 million to just $28.4 million today. Private for-profit and non-profit

owners used the program to finance the construction of 30,616 units of affordable housing each year at its peak.

Since 2012, the program has halted financing the construction new rental housing

In this era of limited resources, Congress and successive Administrations have focused policy and the limited

available resources on preserving the existing Section 515 portfolio. This policy choice leaves many rural

communities without a viable option for financing new housing, as they often lack access to public resources

and private financing necessary for new rental housing.

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Preservation of the public’s rural rental housing stock has faced significant funding challenges. Congress has

never provided sufficient funding to address the preservation needs of the portfolio. According to the 2016

USDA Comprehensive Assessment, meeting the $5.596 billion need to preserve the existing multifamily

housing portfolio will require Congress to increase funding by approximately $290 million per year (uninflated)

for the next 20 years, through Sections 515, 514, and 538, from direct appropriations, tax credit equity, or other

sources.4

In addition to these funding issues, the portfolio is also maturing. Although, as reported by the Housing

Assistance Council (HAC), the tidal wave of maturing mortgages is not estimated to begin until 2028,

additional resources and new policies are needed now to ensure that this important source of affordable rental

housing in rural communities is not lost.5

Background

Introduction

Central to the discussion of the specific programs that make up USDA’s multifamily housing portfolio and

practices used to preserve the portfolio is an appreciation for why these programs are essential to families in

rural communities across the country. In order to effectively identify preservation strategies that can be

successful in rural areas, developers and policy makers must have an understanding of the economic and

demographic characteristics of the people living in these communities.

Overcoming Barriers to Affordable Rental Housing in Rural America

For several decades, rural America has faced an affordable housing crisis. Although housing costs are generally

lower in rural communities, lower incomes and higher poverty rates make many housing options simply

unaffordable for many rural residents. This is especially true for rural renters, who typically earn even lower

incomes and are more likely to live in poverty than other rural families.

The poverty rate in rural America (17.7 percent) is generally higher than in urban areas (14.5 percent) and the

nation as a whole (15 percent).6 It is also a persistent problem according to the Economic Research Service

(ERS) at USDA. ERS defines counties as being persistently poor if 20 percent or more of their population was

poor over the last 30 years (measured by the 1980, 1990, 2000 censuses and the 2007-2011 American

Community Survey).7 Of the 353 persistently poor counties, 301, or an astounding 85.3 percent, are rural

counties.8 More than 15 percent of all non-metropolitan counties are persistently poor – including more than 20

percent of all southern counties.9 This is particularly true in the nation’s highest need regions: central

Appalachia, the Lower Mississippi Delta, the southern Black Belt, border colonias areas, and Native American

lands.10 Thus, any discussion of affordable housing must take into account that rural places carry a

disproportionately high share of nation’s poverty.11

Comparing Rural and Urban Poverty Rates12

At-Risk Poverty Rates, 2014 (in percent)

Race/Ethnicity Age Gender

White Black Hispanic Children Female-Headed

Households

Non-metro 15.5 36.9 33.0 27.5 48.4

Metro 12.2 26.0 25.4 23.9 39.4

Estimates from the 2010 – 2014 American Community Survey show that 15 percent of rural (i.e. non-metro)

households earn less than $15,000 per year, and that around 36 percent of non-metro households earn less than

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$30,000 annually.13 Rural renters tend to have even lower incomes than their home owning-neighbors. The

Results of the 2015 Multi-family Housing Annual Fair Housing Occupancy Report revealed that the average

household living in USDA’s multifamily property with rental assistance lives on $10,554 per year of income

and $12,729 for tenants that do not receive rental assistance.14

High poverty rates and low incomes mean that families living in rural areas often struggle to afford their

housing needs. Nearly five million rural households are “cost burdened,” meaning they spend 30 percent or

more of their monthly income on housing costs.15 Notably, the number of cost-burdened households has been

increasing in rural areas. Rural renters are particularly at risk for being cost-burdened. In fact, 41 percent of all

rural renters fall into this category.16 Moreover, 21 percent of cost-burdened rural renters, or 2.1 million

households, are considered to be severely cost-burdened, which means they pay more than 50 percent of their

monthly income on housing costs.17

Poor Quality Housing

Poor rural families are also more likely than their urban counterparts to live in substandard housing. One reason

for this is that a disproportionately high proportion of the housing stock in rural places is substandard. Homes

are more likely to need extensive repair or improvements to just meet basic health and safety levels. In fact,

more than five percent of the occupied units in rural or small communities are considered to be either

moderately or severely substandard - equivalent to 1.5 million rural families living in poor quality housing. 18

A 2011 American Housing Survey found that extremely low-income households earning less than 30 percent of

the Area Median Income were more than three times as likely to live in inadequate housing. Inadequate housing

means that the home either lacks complete plumbing facilities, has inadequate or no heat, has no or sporadic

electricity or exposed wiring, and/or has maintenance and upkeep issues (for example, leaky roofs, holes in

floors or walls and rodents).

The rate of substandard housing is more prevalent in rural and tribal areas. For example, tribal census tracts are

five times more likely to lack or have incomplete plumbing and non-metro tracts are more than two times as

likely compared to metro tracts. Although most Americans take indoor plumbing and potable water at the tap

for granted, it is unavailable to the 4 percent of rural occupied units with inadequate plumbing. Over 10 percent

(10.3 percent) of these units also have more than one occupant per room which suggests that inadequate units in

rural areas are also likely to be overcrowded.

Lack of Access to Financing

Low-cost capital is essential to the preservation and development of affordable rental housing. It is almost

impossible to maintain below-market rents when paying market-rate debt service. Rural rental developments

often lack the economies of scale that help keep rents low. The housing tends to be smaller, and have fewer

Substandard Housing

According to the U.S. Census Bureau, substandard housing may have inadequate:

Plumbing: Substandard housing may lack piped water, an indoor flush toilet, or both a shower or bathtub;

Heating: Substandard housing may lack a safe and reliable heating source;

Electricity: Substandard housing may lack electricity, or have exposed wiring or inadequate illumination;

Structure or Materials: Substandard housing may have a leaking roof, windows, basement, or plumbing, holes in

the walls or ceilings, peeling paint or plaster, rodent infestation, or lead-based paint; or

Access: Substandard housing may have public areas without working lights, loose or missing steps or railings, or no

working elevators.

Page | 4

units over which to spread operational costs. A lack of population density also means there will be fewer

borrowers and lenders in that community with the experience and expertise to make these deals work.

There are several federal programs designed to generate lower-cost capital for housing in high-need areas. The

Community Reinvestment Act (CRA) and the Low Income Housing Tax Credit (LIHTC) are two of the most

prominent. CRA encourages private financial institutions to make investments in certain low-income

communities as a condition of their overall ratings. LIHTC provides tax incentives for investments in

affordable housing. However, not all rural communities are served by banks that have CRA regulatory

requirements, and LIHTC, while an important resource, is not by itself a deep enough subsidy to finance

affordable housing in small communities. Thus, rural communities, not uniformly covered by CRA and lacking

other subsidies, particularly since the demise of section 515, do not receive a proportional share of LIHTC

investments.

As a result, many rural communities—and especially smaller, more remote communities—struggle to piece

together the low-cost financing needed to develop affordable rental housing. Former USDA Assistant Deputy

Administrator of Multifamily Housing Patrick Sheridan noted, “when there is a choice between new

construction of a larger development in a metropolitan area or a small project in a rural area, the large

development wins nearly every time.”

Rural Rental Housing Programs and Challenges

Introduction

For more than 50 years, federal rural rental housing programs, through Section 515 Rural Rental Housing

Loans, Sections 514 and 516 Farm Labor Housing Loans and Grants, and Section 521 Rental Assistance, have

served as an important source of financing for affordable housing. While these programs received robust

support and funding in their early years, financing hundreds of thousands of units, recent funding trends have

led to a reduction in resources that has hindered preservation and rehabilitation of existing properties and all but

halted new construction.

The decreased funding and lack of new construction have created two confounding issues for USDA. The

portfolio is aging and the there is a substantial, $5.5 billion, cost estimated just to maintain and preserve existing

developments over the next 20 years. Many of the loans made to finance these rental housing properties are

maturing. Under current law, rural Rental Assistance is limited to developments that are financed under Section

515, and farm labor units financed under Section 514. As these loans mature, the developments and their tenants

are no longer eligible for Rental Assistance (RA.) Without RA, the property is no longer required (and often not

able) to maintain affordable rents. In 2015 alone, private owners of 2,646 affordable units in 205 properties left

USDA’s portfolio. 19 When these properties leave the portfolio, the tenants are frequently left with limited

affordable housing options. Although USDA and Congress have, in recent years, taken action to address these

issues, new strategies are needed to provide adequate financing and stem the loss of affordable housing.

Section 515 Rural Rental Housing Loans

Introduction

Since 1963, Section 515 Rural Rental Housing Loans have improved the quality of affordable rental housing in

rural America. Section 515 is authorized under Title V of the Housing Act of 1949.20 As of June 2016, there are

417,511 units of affordable rental housing in 13,877 properties financed by Section 515, making it the principal

source of rental housing in rural communities.21

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Through the Section 515 program, for-profit and non-profit developers are eligible for low cost long term direct

loans for the construction or rehabilitation of rural rental housing. In return for low interest loans, tenant rents

are set at 30 percent of the family’s income and eligibility is limited to low-income households, with incomes

not exceeding 50 percent of the median. Section 515 loans are 50 year loans or 30 year loans amortized for up

to 50 years and feature interest rates subsidized to as low as 1 percent.

All rental housing units financed with Section 515 are exclusively targeted to those with the greatest needs,

including lower-income families, the elderly and persons with disabilities. A vast majority (92.25 percent as of

2015) of Section 515 tenants have very low incomes, earning no more than 50 percent of the Area Median

Income (AMI). The average Section 515 tenant earns just $12,377 each year.22 In addition, 62 percent all

Section 515 households are elderly or disabled tenants, 31.2 percent are headed by persons of color and 71.1

percent are headed by women.23Because the Section 515 Loan Program can be combined with other rental

subsidy programs, including the Section 521 Rural Rental Assistance program, rents are more affordable to

these at-risk populations. In fact, the average rent for a one-bedroom, Section 515-financed housing unit is just

$488 per month.24 For many Section 515 tenants with limited means, the lower rents under the Section 515

program can mean the difference between being able to afford basic needs, such as nutrition and healthcare, and

foregoing those needs to pay for rent.

Section 515 Funding Decline, LIHTC and Initial Preservation Policy

Despite the program’s success, funding for Section 515 loans has been cut dramatically over the past 30 years.

Since its peak in 1982, the program’s funding has been cut by more than 97 percent from $954 million to just

$28.4 million today. While the program financed the construction of 30,616 units of affordable housing

annually at its peak, it has effectively halted financing the construction new rental housing altogether.

Initially, Section 515 properties were not under any use restrictions. Owners were allowed to prepay their

mortgages without any restrictions.25 Because of this, developers used Section 515 financing for rental housing

development and prepaid the loan absent protections for future affordability. When prepayment occurred, the

owner was no longer obligated to comply with USDA regulations and could increase rents to market rates.

In an effort to address this issue, and ensure the sustainability of affordable rental housing in rural communities,

in 1979, Congress passed legislation which created 20 year use restrictions on all USDA multifamily

developments that were financed from that point on.26 Any loan obligated prior to 1979 can be prepaid at any

time.

0

200

400

600

800

1000

1200

Section 515 Program Levels ($ in millions)

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In 1987, Congress passed the Emergency Low Income Housing Preservation Act of 1987 (ELIHPA).27 The

ELIHPA was designed to promote long-term affordability. The Act established prepayment restrictions on all

Section 515 developments that were financed prior to the law’s enactment.28 These restrictions are not a total

prohibition on prepayment of Section 515 mortgages.29 Rather, the law required USDA to offer incentives to

property owners seeking to prepay their loans and to encourage the owners to remain in the program for 20

years.30 Incentives include equity loans made through Section 515, increased rates in the return on investment,

reduced interest rates for the loans and Rental Assistance.31 If a property owner rejects the incentives (and still

decides to prepay), the owner is required to offer to sell the development to a nonprofit organization or public

housing authority to maintain affordability when prepayment would have a negative impact on the minority

housing community. 32

In 1989, Congress expanded use and prepayment restrictions to cover all properties financed after 1989 for the

life of the Section 515 mortgage. 33 In 1992, the ELIHPA was expanded to include loans financed between

1987 and 1989. 34 However, even with these new restrictions, because funding for Section 515 continued to

decline many rural communities were still faced with a major setback in building new affordable rural rental

properties.

This decline in funding for Section 515 has had a broader impact than just the loss of USDA’s affordable rental

housing portfolio. Section 515 played an important role attracting other housing resources to rural America.

With little new rental real estate growth, it is difficult for rural communities to ensure access to affordable

housing.

For example, rural communities frequently used Section 515 to leverage LIHTC investments. LIHTC, which

was created in 1986 and made permanent in 1993, is the primary tool for financing the development and

preservation of affordable rental housing in communities across the United States.35 Through LIHTC, investors

receive a dollar-for-dollar federal tax liability reduction for 10 years, in the form of annual tax credits, in

exchange for providing financing for the development of affordable rental housing. Properties financed through

LIHTC must remain in compliance with the LIHTC eligibility requirements (including restrictions in rent and

availability to low-income tenants) for 15 years.36

LIHTC is administered by the states, typically through state housing finance agencies. Developers submit

applications to the state housing finance agencies, which review the application and award the credits based on

the state Qualified Allocation Plans (QAPs). After a developer receives a LIHTC allocation, they use the credit

to leverage the financial resources needed for the project. Developers can apply for two types of LIHTCs: the

0

5000

10000

15000

20000

25000

30000

35000

Section 515-Financed New Construction Units

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nine percent credit and the four percent credit.37 The nine percent credit covers 70 percent of the low income

unit cost without additional federal subsidies. The four percent credit is roughly equal to 30 percent of the low

income unit cost for new construction with additional subsidies or acquisition of an existing building. Because it

supplies a lower level of subsidy, the four percent credit is typically used with tax exempt bonds and other

additional funding sources from HUD – HOME and CDBG; USDA – Section 538, Section 515 and MPR and

the Federal Home Loan Bank Affordable Housing Program. Because the nine-percent credit offers a higher

subsidy rate, it typically has a more competitive allocation process.38 Although the four-percent credit is less

competitive, it can be difficult for organizations – particularly smaller organizations – to meet the necessary

funding gap that is necessary due to the smaller subsidy amount.39

Between 1987 and 1994, 31 percent of all affordable housing properties financed with LIHTC also leveraged

Section 515 Rural Rental Housing Loans. As funding for Section 515 has been cut, however, rural communities

find it more difficult to attract LIHTC investments. 40 In fact, between 1995 and 2009, only nine percent of

LIHTC-financed rental properties leveraged Section 515 funds.41

2004 USDA Comprehensive Report Findings, Response and the MPR Program

In 2004, USDA published a Comprehensive Property Assessment and Portfolio Analysis, which examined the

various challenges to preserving the Section 515 portfolio, including prepayment options, rapidly aging

properties, and recapitalization needs.

The report found that 10 percent of all Section 515 properties are located in markets where they could serve

uses other than affordable housing. As discussed above, under current law, Section 515 loans obligated before

December 15, 1989 may be prepaid by the development’s owner, granted that certain conditions are met. The

vast majority of projects are located in markets where their only use was as affordable housing.

The 2004 Comprehensive Property Assessment and Portfolio Analysis found that none of the Section 515

properties had the financial reserves to meet their projected capital needs for ongoing maintenance and repairs.

At the time, it was estimated that $2.6 billion in additional funding was needed over the next 20 years—in the

form of rental assistance or other financing tools—in order to preserve the portfolio.42

In response to the findings from the 2004 report, in 2006, Congress established a Multifamily Housing

Preservation and Revitalization (MPR) demonstration program, which authorized USDA to employ a variety of

financing options in order to preserve the Section 515 and Farmworker housing properties in its portfolio. The

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

100

200

300

400

500

600

700

19

87

19

88

19

89

19

90

19

91

19

92

19

93

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94

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95

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97

19

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00

20

01

20

02

20

03

20

04

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06

20

07

20

08

20

09

20

10

Funding Trends Section 515 and LIHTC

Section 515 Program Level LIHTC Units in Rural Areas

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goal of the MPR program is to recapitalize properties by restructuring USDA multifamily housing loans and

leveraging resources for other federal and state programs. This includes both Section 515 and Section 514

mortgages, and is often done in conjunction with grants, private debt guaranteed under Section 538, tax credits

and other sources in order to revitalize the properties and extend their affordable use. Thus far, the MPR

effectively attracts three times its funds in investments from LIHTC and other sources, though it remains a

demonstration program subject to annual appropriations.

The MPR has financed an estimated 26,459 units in 1,218 properties between 2006 and 2014.43

2016 USDA Comprehensive Report

The 2016 USDA Comprehensive Property Assessment and Portfolio Analysis looked at USDA’s Section 515

properties, as well as their farm labor housing properties, Section 538 financed developments and projects

refinanced under the MPR program.44

The USDA report analyzed the per unit per annum (PUPA) net reserves. PUPA is the estimated reserves for

replacement that a property must set aside for each unit annually in order to maintain the unit’s functionality.

The PUPA reserves deficit refers to the PUPA net of reserves for replacement. Where the PUPA is greater than

available reserves, additional funding is required to maintain the property. Thus, reducing the PUPA deficit is

important for continuing the useful life of the property.45 The report found that average PUPA reserves deficit

for the Section 515 portfolio increased. In the 2004 study, the PUPA reserves deficit was $647 (average per

property). By 2015, the PUPA deficit was $964 (average per property).

The average age of rental housing in the Section 515 portfolio is 34 years old. The 2004 report USDA

estimated that an additional $2.6 billion was needed over the next 20 years to preserve the portfolio. However,

the 2016 report found that the need has more than doubled in the past 12 years, and it is now estimated that

$5.596 billion will be needed over the next 20 years just to preserve USDA’s rental housing stock. Of that

amount, $4.7 billion relates to Section 515 developments.

The 2016 report looked at the quality of the USDA multifamily portfolio. Over 50 percent of both rural rental

and farmworker projects had major capital needs that should be addressed within 10 years. Yet, careful

operations and differing needed renovations and repairs has allowed 83 percent of the Section 515 and 77

percent of Section 514 property to stay at or above the minimum standards for decent and safe housing. A total

of 17 percent of the current Section 515 properties, and 23 percent of Section 514, projects were deemed below

average.46

In the 2016 Comprehensive Property Assessment and Portfolio Analysis USDA found that the MPR has been a

successful tool in reducing PUPA reserve deficits.47 For example, projects built before 1979 that did not

participate in MPR have an average deficit of $1,296. Compare this to PUPA deficits of $450 for those

properties built before 1979 that were in the MPR. For properties constructed between 1990 and 1999, the

difference was $885 to just $122 for those in the MPR. The 2016 report thus concluded that the “MPR was

considered ‘successful’ in terms of its meeting its objectives as a program.” The 2016 report further stated that

the MPR could effectively decrease the PUPA reserves on Section 515 properties.

Housing Assistance Council August 2016 Report

The Housing Assistance Council (HAC) reports that Section 515 has been used throughout its history to finance

around 28,000 rental properties, with a total of 533,000 units.48 HAC also found that reduced program funding,

corresponding to reductions in LIHTC investments and a lack of resources dedicated to preservation, has

reduced USDA’s current portfolio to less than 14,000 properties.49

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More and more properties, and the affordable rental units within them, are expected to exit the portfolio due to

prepayment or mortgage maturity, meaning the loans are reaching their payoff dates, every year. According to

the Housing Assistance Council’s analysis of USDA data, rate of maturation and prepayment between 2016 and

2027 averages around 74 properties per year.50 However, the number of properties exiting the USDA portfolio

sky rockets in 2028 to 407, and averages 556 properties per year for the next five years (2028 through 2032).51

Between 2032 and 2050, an estimated 12,530 properties will mature or be prepaid, with the greatest loss, 927

properties, with some 30,831 units, exiting in 2040.52

Section 514/516 Farm Labor Housing Loans and Grants

Introduction

Today, America’s farmworkers face extremely high levels of poverty and have the worst housing needs of all

rural people. According to the USDA Economic Research Service, nearly 60 percent of the 3 million

farmworkers across the nation live in poverty—a rate more than five times the national average. As a result,

farmworkers face extremely powerful barriers to decent, safe, and affordable housing, forcing many to live in

substandard, crowded, and unsanitary conditions.

The USDA Section 514 and 516 Farm Labor Housing Loan and Grant programs are the only federal program

designed to increase access to affordable housing for America’s farmworkers.53 Authorized in Title V of the

Housing Act of 1949, these programs have provided low-cost loans and grants to help acquire, build, improve,

and repair housing for farm workers for more than 40 years.54 Demand for farmworker housing has far

outstripped the supply. And for the housing that has been built, USDA’s 2016 Comprehensive Property

Assessment found it lacks the funds to address $15 million of the repairs and renovations necessary just to keep

the property operating and habitable. This is a shortfall of $187 million over 20 years to maintain the 15,839

units of Section 514 off-farm housing.

In fact, a 2013 survey conducted by the Housing Assistance Council found that about one-third of farmworkers

pay more than 30 percent of their monthly incomes on housing and are considered “cost-burdened.” In

addition, more than 23 percent of farmworker housing is either moderately or severely substandard. This is

much greater than the 5 percent substandard housing rate for all rural communities. A report from the

Government Accountability Office (GAO) found that demand for affordable housing is so high among

farmworkers that an increasing number have been forced to live in informal dwellings such as garages, sheds,

and trailers because they lack other options.55

With such high need, all Section 514/516-financed housing is exclusively targeted to very low-, low-, and

moderate-income farmworkers. Residents of USDA’s Farm Labor Housing properties have an average income

of $22,429 per year.56 Slightly more than 20 percent of Farm Labor Households are elderly or disabled and 94.9

percent of residents are persons of color.57 All must be U.S. citizenship or have permanent residency status.

Under the program, farmers, nonprofit organizations, and local governments are eligible to receive low-interest

loans—subsidized to as low as one percent—with terms of up to 33 years. Public bodies—typically housing

authorities—and nonprofit organizations may also receive grants to cover up to 90 percent of development

costs. Nearly 70 of the developments also receive on-going rental housing subsidies provided under the USDA

Section 521 program. In exchange for the low-interest loans and on-going rental subsidy, owners agree to limit

the rent collected from farm workers to 30 percent of the workers’ income. On average, each Section 514/516

tenant that receive rental assistance earns $16,460 a year.58

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Chronic Underfunding of Farmworker Housing

Despite significant need for Section 514/516 financing, the program has been chronically underfunded. On

average, the Section 514/516 program finances the construction of about 600 housing units each year. Compare

that to California, where more than 800 families are currently on the wait list for a single farm worker housing

project.

Section 521 Rental Assistance

USDA’s Section 521 Rental Assistance59 (RA) program serves some of rural America’s most vulnerable

residents, including aging seniors, individuals and families with very low incomes, persons with disabilities and

farmworkers. Without assistance from the Section 521 program, these individuals would not be able to access

clean, decent and affordable housing. RA is often granted to property owners in conjunction with Section 514

and Section 515 loans. This allows rent charges to be no more than 30 percent of the tenant’s monthly income.

As of September 2015 the average annual income for a tenant receiving Rental Assistance in a Section 515

development was $10,554. Over 62 percent of RA households are elderly or disabled tenants, 31.5 percent are

headed by persons of color, and 73 percent are headed by women.60 Rental assistance is essential for many

rural families, even with the lower rents in Section 515 and Section 514. Of the total 407,240 households in

Section 515 and 514 properties, 54,171 are considered cost-overburdened, paying more than 30 percent of their

income for rent and utilities.61

25

27

29

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37

2011 2012 2013 2014 2015 2016

Section 514 and 516 Appropriations (in millions)

980 965 904 9071110 1089

1389 1405

388221

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252 253

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USDA Rural housng Budget Authority ($ in millions)

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The FY 2017 House (H.R. 5054) and Senate (S. 2956) Agriculture Appropriations Bills included funding for

Rental Assistance at $1.4 billion, making it the single largest program in the Rural Development discretionary

budget.62 According to the USDA FY 2017 budget justification, the estimated average annual per unit cost of

rental assistance is $4,911.63

Budget Authority for the Section 521 Rental Assistance program has grown from 72 percent of the Rural

Housing budget in 2010 to 89 percent in 2014. The enacted funding level of Section 521 was $1,110 billion in

FY 2014. In FY 2015, funding decreased slightly to $1.089 billion. The FY 2016 Omnibus included $1.390

billion for Section 521 – an increase of over $300 million.64 The increase ensures current Section 521 units

continue to receive rental assistance, and not at expanding the program.

Of the total 687,869 residents (not households) in USDA’s multifamily housing portfolio, 447,783, or 65

percent, receive Section 521 RA. The FY 2017 budget estimates 286,000 households will receive rental

assistance if the funding level in the House and Senate bills are met.65

USDA and Congressional Action

USDA Unnumbered Letter

On September 16, 2016, in an unnumbered letter USDA RHS announced a new pilot program designed to

incentivize the participation of nonprofit organizations in the Section 515 program.66 The program, which has

an effective date of March 1, 2017, applies to transfer applications of Section 515 properties that are expected to

mature or be prepaid on or before December 31, 2030, where a nonprofit organization is the purchasing

entity. The incentives provided in the UL are:67

Return on Investment (ROI) for Nonprofit Entities;

Change in the calculation of Security Value; and

Allowance for hard cost contingency.

Currently, nonprofit organizations are not eligible to earn an ROI in USDA’s multifamily housing

properties. However, because multiple funding resources, including a nonprofit’s own resources as well as third

party funds, are often required to finance the transfer of a Section 515 property, the prohibition of ROI is

7281 85 84 89

81 85 85

2819 15 16 11

19 15 15

0%

10%

20%

30%

40%

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2010 2011 2012 2013* 2014 2015 2016 2017Proposed

Rental Housing Budget Authority (In Percent)

Section 521 Rental Assistance All Other Rural Housing Programs

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limiting and prevents nonprofit involvement. In recognition of this, RHS in the UL permits nonprofit

organizations to earn an ROI on initial investments for properties maturing or being prepaid before December

31, 2030. 68

However, the UL specifies that nonprofit entities must choose to receive the allowable ROI or the Asset

Management Fee (which is a reimbursable fee of up to $7,500 per entity for certain expenses). A nonprofit will

not be able to earn both the ROI and the Asset Management Fee.69

In addition, USDA will also recognize grant dollars as the applicant’s own resources for the purposes of

determining the ROI, as long as the grant is from a Federal, state or local government entity, or other approved

source.70 The grant dollars must also be used for hard costs of construction. A developer loan is a loan made by

one nonprofit organization, which received a grant for capital improvements, to a new eligible non-profit entity.

In certain conditions, through the pilot program, the developer loan may be included in the calculation of the

ROI. Under a previous unnumbered letter dated October 26, 2015, the only nontangible assets included in the

Security Value were Federal direct or Federal intermediary lending programs. The UL specifies that state or

local loans provided at favorable rates will also be included in the Security Value calculation, provided an

agency accepted appraisal documents the value of these loans.

Hard cost contingency is used to address unforeseen hard costs, such as additional labor and materials, required

during construction. Under the UL, when a Section 515 loan is being used for rehabilitation, it will be

considered an eligible loan cost. As an eligible loan cost, it will be included in the ROI calculation.71

Fiscal Year 2017 Senate Appropriation Provisions

The FY 2017 House and Senate Agriculture Appropriations bills (H.R. 5054 and S. 2956) included increased

funding for Section 521 at $1.405 billion, an increase of around $16 million over the FY 2016 enacted level.72

The Senate bill also included provisions aimed at improving multifamily housing programs overall.73 The

Senate bill provided increased funding for Section 515, over the FY 2016 enacted amount as well as the House

request. Specifically, the Senate bill funds Section 515 rural rental housing at $40 million for FY 2017, which

is an increase of five million dollars over the House bill ($35 million) and over $11 million more than the

enacted level for FY 2016. 74

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FY 16 Final FY 17 House FY 17 Senate

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The Senate bill also includes several other notable changes to the Section 515 program in an effort to develop

solutions to address the issues created by maturing 515 mortgages. 75 The Senate bill directs the Secretary to

implement provisions and provide incentives to facilitate the transfer of USDA multifamily properties to

nonprofit organization and public housing authorities, including to allow such entities to earn a ROI and an

Asset Management Fee of up to $7,500 per property. The report includes language directing the Secretary of

USDA to engage affordable housing advocates, property owners, tenants, and other interested parties, to find

long-term solutions to maintaining affordable housing properties in rural America.

The Senate bill further recommends $1 million for a new pilot program for grants to qualified non-profit

organizations and public housing authorities to provide technical assistance to USDA multifamily housing

borrowers to facilitate the acquisition of RHS multifamily properties by non-profit housing organizations and

public housing authorities that commit to keeping the properties in the USDA multifamily housing program for

a set period of time. 76 This proposal could be particularly important to the smallest private owners who do not

currently have access to the technical expertise needed for the increasingly complex nature of affordable

housing finance.

The provisions in the Senate bill reflect an important step to meeting the affordability and quality demands for

improving rental housing in rural communities.

Case Studies

Preserving rental housing in an era of declining resources is challenging and there is not one source of capital

that can finance a transfer or rehabilitation of rural rental housing on its own. The process of assembling the

necessary capital stock often runs into policies and procedures that impede, rather than expedite, the effort. As

discussed above, there are resources available for rural rental housing transfer and preservation at the federal

level, through USDA multifamily programs, and at the state, through LIHTC, the HOME program and other

state resources. Despite the challenges facing USDA’s multifamily housing portfolio, with these resources and

the innovation of rural development leaders, there are number of success stories for rural rental housing

preservation.77

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Greystone Affordable Housing Initiatives LLC

Preserving Oft-Overlooked Housing

Greystone Affordable Housing Initiatives LLC (Greystone) recently orchestrated a

complex financial transaction to preserve 1,058 affordable housing units deemed at

risk of exiting the U.S. Department of Agriculture’s (USDA’s) Rural Development

Section 515 program. The company bundled 24 separate multifamily properties

serving low-income households in 12 different counties scattered across rural Florida

into a single bond issue and transferred them to new ownerships (an affiliate of The Hallmark Companies, Inc.),

which extended the affordability restrictions for another 30 years.

Although the primarily garden-style communities maintained an average vacancy rate of less than 10 percent,

all were built in the late 1970s and early ‘90s and were showing their age. “The buildings were approaching the

end of their lives,” said Tanya Eastwood, President of Greystone’s affordable housing group. “They had

minimum built‐up capital reserves for extensive rehabilitation, and there were little viable resources within

Rural Development to assist with large‐scale preservation. Many of the properties were also at the end of their

restricted‐use agreements; therefore, the owners were ready to sell and exit the program.”

Greystone is a real estate finance and transaction management firm with a deep passionate focus on meeting the

challenges frequently experienced by both non‐profit and for profit owners with the recapitalization and

preservation of affordable housing properties. The company assists with the acquisition, and rehabilitation of

properties, including performing due diligence, securing financing, and managing the rehab process.

The Florida preservation initiative began in the fall of 2015, and was certainly no easy feat. Preserving these

units required a highly complex $130 million effort, combining both public and private funding. It included a

single issuance of $42 million in multifamily private activity tax‐exempt bonds by Osceola County Housing

Authority, and a purchase of 4 percent Federal Low Income Housing Tax Credits by Boston Financial

Investment Management, generating $28 million in capital contributions. The financing plan also included the

assumption and subordination of $27 million of original USDA Section 515 debt, which is a direct loan

program designed to provide subsidized loans to owners of affordable housing in rural markets. Final funding

included senior debt of $30 million and other funding sources totaling $3 million.

The complexity came from not only the sheer volume but also all the different parties involved ‐ with some

having different or competing agendas. “We were dealing with 24 different sellers who we had to get to the

table at the same time and numerous deadlines related to tax credits, bonds, financing applications and

approvals, and third party reports with varying expiration dates,” said Campbell Brown, Senior Vice President

of Greystone.

“One of the most unique elements that Greystone brings to the table as a transaction manager is that we are

investing in the deal from day one,” continues Eastwood. “When you try to close on 24 properties at the same

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time, it takes a tremendous amount of money to complete appraisals, market studies, capital needs assessments,

rehab scopes of work and drawings, legal due diligence, etc. That is often a real stumbling block for many of

the current Rural Development property owners, as most do not have that kind of ‘at‐risk’ money lying around.

And chances are that, if one never closed, the costs are never recouped.” In this particular transaction,

Greystone invested close to $1.4 million in due‐diligence costs, with an exposure of more than $2 million if the

deal did not close.

Substantial renovations, averaging $32,000 per unit, will include both interior and exterior improvements.

Particular emphasis will be placed on bringing the properties up to modern standards, addressing accessibility,

functional obsolescence and deterioration. The rehabilitation plan includes a fast‐paced construction process,

estimated to be completed within 12 months, during which time no residents will be permanently displaced.

A National Model

Greystone believes this initiative can serve as a valuable model for preserving other aging Rural Development

properties. There are approximately 14,500 remaining Rural Development properties across the country,

representing close to half a million units with over $5 billion of estimated capital needs. However, preservation

done one at a time would be economically impractical. Furthermore, the learning curve for such complex

financings for most owners and operators (whose daily focus is typically property management) would be

frustratingly steep – not to mention the necessary time commitment would cripple most organizations.

Greystone continues to provide both the creative solutions and crucial financing needed to satisfy the often

conflicting needs of multiple parties, and the disciplined transaction management to get deals done. Greystone

is dedicated to sustaining and expanding affordable housing throughout the United States, particularly in rural

markets.

Contact: Tanya Eastwood, President, (919) 573-7502; 4025 Lake Boone Trail, Suite 209, Raleigh, NC 27607;

tanya.eastwood@greyco.com

Southwest Minnesota Housing Partnership

Why Housing Matters

Victoria Thorp was born and raised in Crookston, MN. Vicki had the

opportunity when she was sixteen to live for a year with her sister in

New Orleans and fell in love with Louisiana. After graduating from

Crookston High School, Vicki moved to the French Quarter and lived and worked there for over 40 years until

August 28, 2005. Vicki fled from the French Quarter with a small suitcase and her cat in a three car caravan the

afternoon before Katrina’s landfall. Having no car she left with a former boyfriend, his current girlfriend, his

Achievements in Partnership with Affordable Housing Owners

Portfolio Transactions Closed AL, FL, GA, KY, NC, SC, TN, & VA

Portfolio Transactions in Progress FL, GA, KY, LA, OK, MI, NC, NJ, NY, & SC

Affordable Properties Preserved to Date –

Completed

238 properties, 8,287 units

Affordable Properties Preserved to Date – In

Progress

180 properties, 7,859 units

Average Portfolio Size 24 properties, 803 units

Total Development Costs on Completed Portfolios $842 million

Page | 16

parents and sister with four cats and two dogs for Baton Rouge. A friend took all of them in as well as other

travelers, until there was no more floor space for sleeping bags. This included twelve pets as well. Vicki stay ten

days in Baton Rouge until her brother, William who was the caretaker at Nimens-Espegard Apartments secured

an apartment for Vicki and arranged a flight to Grand Forks, North Dakota where William gave her a ride to

Crookston. Vicki lost everything in Katerina. Her apartment was destroyed, all of her possessions were lost and

her place of employment was severely damaged and never re-opened for business.

She found a very welcoming community upon her return. Community members made donations, provided

furnishings and helped her to feel welcome in Crookston. The residents and manager helped her to make a new

home at Nimens-Espegard Apartments where she has lived for the past 10 years since fleeing Katrina. Vicki’s

story is a remarkable commentary on kindness exhibited by friends, family and in particular complete strangers

in a time of crisis.

The Nimens-Espegard Project

Nimens-Espegard is a 98 unit Section 515 development located in Crookston, MN. Constructed in 1977,

Nimens became at-risk of loss due to pre-payment eligibility and the owner’s desire to exit the Rural

Development program. As the largest property in RD’s Minnesota portfolio with significant rental assistance,

keeping the property in the program and rents affordable for the low income residents was a priority.

The property was identified by the Minnesota

Preservation Plus Initiative (MPPI), which is a 10 year

partnership to pro-actively preserve Minnesota’s

existing affordable housing. Nimens was at risk of

converting to market-rate housing because of its good

condition and a strong local market. The MMPI

partners contacted the Southwest Minnesota Housing

Partnership (SWMHP) to consider acquiring and

preserving the property, even though the property was

located well north of SWMHP’s traditional operating

area. The partners were seeking an experienced,

preservation-oriented buyer who has previous Rural

Development acquisition experience and capacity to rehabilitate, own and manage the property long-term.

The co-funders and members of MPPI, including USDA Rural Development, the Greater Minnesota Housing

Fund, and Minnesota Housing Finance Agency, each contributed equity loans, new below-market debt and

subsidy with twenty (20) new rental assisted units being obtained. The property was acquired and rehabilitated

in 2015.

Total financing for this project was $5,566,307 and included:

USDA Rural Development (1st lien): $1,728,986

Greater MN Housing Fund /USDA RD Multifamily Housing Preservation Revolving Loan Fund (2nd

lien): $1,500,000

Minnesota Housing Finance Agency: (soft second): $1,987,321

City of Crookston (Small Cities/CDBG): $350,000

There were many challenges to this project, including the multi-year transfer approval process with USDA

Rural Development; existing disincentives for Non-profit ownership including lack of return to owner and/or

asset management fees, and, due to the urgent need to quickly preserve the project, it fell out of the nine percent

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LIHTC funding cycle. In the end, this was the largest existing USDA property in Minnesota, and it was

successful due to the pro-active effort with contributions from all funders.

Southwest Minnesota Housing Partnership

The Southwest Minnesota Housing Partnership is a non-profit community development corporation serving

communities throughout southwest and South Central Minnesota. The Mission of the Partnership is to “Create

thriving places to live, grow, and work through partnerships with communities.” SWMHP aims to build strong

and healthy places to live so that the communities in the region thrive.

Contact: Rick Goodemann, Chief Executive Officer, 2401 Broadway Avenue, Slayton, MN 56172, (P): 507-

836-1602; (F): 507-836-8866.

Findings and Conclusion

Sections 515 and 514 have played a critical role in financing rental housing in rural communities. In many small

towns, the rental housing financed by USDA is the only affordable housing available. For that reason

preservation of these properties is essential.

Recent efforts by USDA to share data for the multifamily housing portfolio have allowed policy makers and

advocates to have a clearer picture of the status and need of the portfolio. There are two major challenges facing

USDA in simply maintaining its current portfolio:

1. There is a massive shortfall in the funds needed to maintain the habitability of existing properties. The

average age of the rural rental housing portfolio is 34 years. As the 2016 USDA Comprehensive Report

indicated, there is a 20 year, $5.5 billion cost for maintaining and preserving existing rural rental

housing developments and the approximately 470,000 units of existing rural rental housing (Section 515

and 514). Revitalization efforts must expand in order to fully address the scale of the issue. In FY 2015

USDA financed the revitalization of 3,544 units of rental housing, bringing the total number of units

revitalized through the MPR to over 30,000.

2. There is a rising tide of maturing mortgages, which will result in increasing affordability issues for low-

and very-low-income rural renters. As Sections 515 and 514 loans have matured, those developments

and their tenants are no longer eligible for rental assistance. USDA has already lost a substantial

number of units, losing 2,646 units from 205 properties in 2015 alone, and this trend is expected to

continue over the next several decades. If existing refinancing programs are not expanded and new

preservation policies and practices are not explored, rural communities across the country will lose this

essential source of affordable housing.

Section 515 and 514 funding alone are insufficient to finance the necessary rehabilitation and preservation of

USDA’s multifamily housing portfolio. Without LIHTC, nonprofit housing developers, who are essential to

this effort, will be unable to afford the purchase and improvement costs associated with these properties. Due to

the competitive nature of the nine percent credits, which offer a higher subsidy rate, the four percent credit,

which use tax exempt bonds and require more outside financing, is more accessible to nonprofit housing

developers in rural communities. However, modifications to state LIHTC application processes to prioritize the

preservation of rural rental properties, potentially through creating a set-aside for nine percent credits for this

type of project, would allow for more nonprofit organizations to be able to finance revitalization projects.

Given the vast number of properties and units, the preservation strategy employed by Greystone is particularly

attractive. By grouping multiple properties together under one transaction, this method makes the preservation

effort more economically viable, lowers development costs and impacts a larger number of rental units at one

Page | 18

time. However, because the transactions are larger, they typically involve increased up-front costs, increased

workloads and the cooperation and coordination between multiple property owners, lenders and regulators.

Generally, states prefer to use the nine percent credit on new construction properties and the four percent credit

on rehabilitation projects. As explained above, the four percent credit can be difficult to use in smaller projects,

like the Nimens-Espegard project. That means that organizations like Southwest Minnesota Housing

Partnership must then secure financing from many different sources in order to preserve a property.

While the actions taken by USDA in the September 16, 2016 UL are a step in the right direction, and an

indication that RD is taking the preservation of its multifamily housing portfolio seriously, there is more that

USDA could do to alleviate burdens and hurdles that prevent nonprofit housing developers from purchasing

Section 515 and 514 properties. The provisions from the FY 2017 Senate Agriculture Appropriations Bill and

the report would encourage more nonprofit involvement. The key differences between the UL and the Senate

bill are:

The UL is a two year pilot program. After two years, USDA will review the results of the program to

determine if the incentives provided in the UL should be revised, discontinued or made permanent.

The UL pilot program only applies to properties with mortgages that will mature or prepay by December

31, 2030. The Senate Bill’s language is broader, and is designed to incentivize the transfer of all rural

housing service multifamily housing properties to nonprofit organizations that commit to maintaining

the properties in USDA multifamily housing programs.

The ROI calculation does not include proceeds from LIHTC synchronization.

The UL does not expand the Asset Management Fee from per-entity to per-property. The UL also limits

the Asset Management Fee by allowing nonprofits to either earn an ROI or the Asset Management Fee,

but not both.

The UL does not include the $1 million in the form of a technical assistance pilot program to facilitate

transfers of Section 515 properties to nonprofits.

Thus, while the UL includes important program changes USDA’s multifamily housing programs, in light of the

current need of the USDA portfolio, the provisions in the Senate bill are needed to preserve these essential

properties. Specifically, as the above case studies indicates, the preservation of multifamily housing in rural

areas are typically not financially possible without the use of LIHTC. The program changes included in the

Senate provisions will be more effective in encouraging the involvement of nonprofit housing developers in the

preservation of USDA’s multifamily housing portfolio.

In light of the above research, NRHC makes the following recommendations to address the issues facing the

USDA multifamily housing portfolio:78

1. Continue progress in revamping Section 515 rules to accommodate other partners, including state

housing agencies and other federal agencies.

2. Mission driven organizations are an important resource for preserving and maintaining affordable rental

housing is rural America. USDA should revamp rules to encourage participation by nonprofit

organizations and public housing agencies. This should include encouraging these organizations to use

LIHTC in funding the acquisition and preservation of Section 515 and Section 514 developments. Under

current regulations, nonprofit agencies cannot include LIHTC proceeds in calculating return on

investment.

Page | 19

3. Affordable housing finance is a complex business. Property owners need additional technical assistance

to acquire and preserve Section 515 and Section 514 developments. Many current owners are small

business people who started working with Sections 515 and Section 514 in the mid-1970’s. As a group

they are nearing retirement and many are anxious to sell or transfer their properties. USDA assistance in

understanding the relevant rules, regulations and resources could help these owners make the right

decisions in preserving housing.

4. The availability of rural rental assistance is contingent on a property having a Section 515 or Section

514 mortgage. USDA should address the emerging increase of maturing mortgages by encouraging

owners to take advantage of MPR and other tools for refinancing developments with Section 515. With

the extended financing in place, rental assistance will continue through the term of the new loan.

5. While LIHTC is a key ingredient, it is increasingly difficult for rural properties to get the nine percent

credits; and especially challenging for rural properties to accumulate the additional subsidy necessary to

effectively employ the four percent credits. Policy makers at the state level should consider providing

additional nine percent credits to rural areas or, failing that, encourage the greater allocation of HOME

and CDBG to accommodate the four percent credit in rural areas.

1 NRHC has released a conference summary in conjunction with this paper: “An Exploration in Federal Rural Rental Housing Policy:

Conference Summary,” The National Rural Housing Coalition, April 2017 (available at:

http://ruralhousingcoalition.org/archives/1274). 2 “USDA Rural Development Multi-Family Housing Comprehensive Property Assessment,” U.S. Department of Agriculture Rural

Development (March 1, 2016) https://www.rd.usda.gov/files/reports/USDA-RD-CPAMFH.pdf. 3 The whitepaper released in conjunction with this report includes a detailed overview of the conference panel presentations,

highlights successful preservation strategies and includes NRHC’s recommendations for preserving rural rental housing. “An

Explanation in Federal Rural Rental Housing Policy: Conference Summary,” National Rural Housing Coalition (Apr. 2017)

http://ruralhousingcoalition.org/archives/1274. 4 “USDA Rural Development Multi-Family Housing Comprehensive Property Assessment,” U.S. Department of Agriculture Rural

Development (March 1, 2016) https://www.rd.usda.gov/files/reports/USDA-RD-CPAMFH.pdf. 5 “Maturing USDA Rural Rental Housing Loans: An Update,” Rural Policy Note, Housing Assistance Council. August 29, 2016.

http://www.ruralhome.org/storage/documents/policy-notes/rpn_maturing-mortgages-usda-2016.pdf. 6 Sonali Mathur, “Are Renters and Homeowners in Rural Areas Cost-Burdened?” Housing Perspectives, The Harvard Joint Center for

Housing Studies (Aug. 11, 2016) http://housingperspectives.blogspot.com/2016/08/are-renters-and-homeowners-in-rural.html. 7 “Geography of Poverty,” Rural Poverty & Well-being, U.S. Department of Agriculture Economic Research Service (last accessed

Dec. 20, 2016) https://www.ers.usda.gov/topics/rural-economy-population/rural-poverty-well-being/geography-of-poverty.aspx. 8 Id. 9 Id. 10 Id. 11 Id. 12 “Poverty Demographics,” Rural Poverty & Well-being, U.S. Department of Agriculture Economic Research Service (last accessed

Dec. 20, 2016) http://www.ers.usda.gov/topics/rural-economy-population/rural-poverty-well-being/poverty-demographics.aspx. 13 Sonali Mathur, “Are Renters and Homeowners in Rural Areas Cost-Burdened?” Housing Perspectives, The Harvard Joint Center for

Housing Studies (Aug. 11, 2016) http://housingperspectives.blogspot.com/2016/08/are-renters-and-homeowners-in-rural.html. 14 Results for the 2015 Multi-Family Housing Annual Fair Housing Occupancy Report, U.S. Department of Agriculture, January 22,

2016. Available at: http://www.rd.usda.gov/files/01-22-16%20MFH%20Occupancy%20Report.pdf. 15 Sonali Mathur, “Are Renters and Homeowners in Rural Areas Cost-Burdened?” Housing Perspectives, The Harvard Joint Center for

Housing Studies (Aug. 11, 2016) http://housingperspectives.blogspot.com/2016/08/are-renters-and-homeowners-in-rural.html. 16 Id. 17 Id. 18 “Housing in Rural America,” Taking Stock: Rural People, Poverty and Housing in the 21st Century, Housing Assistance Council.

2012 http://www.ruralhome.org/storage/documents/ts2010/ts-report/ts10_rural_housing.pdf. 19 Results for the 2015 Multi-Family Housing Annual Fair Housing Occupancy Report, U.S. Department of Agriculture, January 22,

2016. Available at: http://www.rd.usda.gov/files/01-22-16%20MFH%20Occupancy%20Report.pdf.

Page | 20

20 42 U.S.C. 1490(c). 21 Corianne Payton Scally and David Lipsetz, “New Public Data Available on USDA Rural Housing Service’s Single-Family and

Multifamily Programs,” Cityscape: A Journal of Policy Development and Research, Vol. 19 No. 1, 2017 (available at

https://www.huduser.gov/portal/periodicals/cityscpe/vol19num1/ch17.pdf). 22 Results for the 2015 Multi-Family Housing Annual Fair Housing Occupancy Report, U.S. Department of Agriculture, January 22,

2016. Available at: http://www.rd.usda.gov/files/01-22-16%20MFH%20Occupancy%20Report.pdf. 23 Id. 24 Id. This is the average rent for both Section 515 and Section 514 properties. 25 “RHS/RD Rental Housing Preservation,” Housing Justice, National Housing Law Project (last accessed Dec. 20, 2016)

https://nhlp.org/resourcecenter?tid=61. 26 Id. 27 Id. 28 Id. 29 Id. 30 Id. 31 “A Guide to Best Practices in Rural Rental Preservation,” Housing Assistance Council (Aug. 2008)

http://www.ruralhome.org/storage/documents/preservguidebestprac08.pdf. 32 “RHS/RD Rental Housing Preservation,” Housing Justice, National Housing Law Project (last accessed Dec. 20, 2016)

https://nhlp.org/resourcecenter?tid=61. 33 Id. 34 Id. 35 Mark Keightley, “An Introduction to the Low-Income Housing Tax Credit,” Congressional Research Service (Feb. 12, 2013)

https://fas.org/sgp/crs/misc/RS22389.pdf. 36 Id. 37 Id. 38 Id. 39 Id. 40 Jill Khadduri, Carissa Climaco, and Kimberly Burnett, “What Happens to Low-Income Housing Tax Credit Properties at Year 15

and Beyond,” U.S. Department of Housing and Urban Development, August 2012 (available at

https://www.huduser.gov/publications/pdf/what_happens_lihtc_v2.pdf). 41 Id. 42 Sarah Mickelson, “Rural America’s Rental Housing Crisis,” The National Rural Housing Coalition, 2014 (available at

http://ruralhousingcoalition.org/wp-content/uploads/2014/07/NRHC-Rural-America-Rental-Housing-

Crisis_FINALV3.compressed.pdf). 43 Id. 44 “USDA Rural Development Multi-Family Housing Comprehensive Property Assessment,” U.S. Department of Agriculture Rural

Development (March 1, 2016) https://www.rd.usda.gov/files/reports/USDA-RD-CPAMFH.pdf. 45 Id. 46 Id. “Below average” means that the property “exhibits pervasive wear and tear, some limits in functionality

and deferred maintenance issues. Life safety/code issues are significant and/or numerous and involve

substantial costs. High reserves are required” for properties that are “below average.” Properties that are

“poor” quality are characterized by “inferior/deteriorating conditions and some limits functionality.

Deferred maintenance is pervasive and will [be] costly to cure. Multiple life safety/code issues are

identified and involve significant cost. Extensive repairs are required.” 47 Id. 48 “Maturing USDA Rural Rental Housing Loans: An Update,” Rural Policy Note, Housing Assistance Council. August 29, 2016.

http://www.ruralhome.org/storage/documents/policy-notes/rpn_maturing-mortgages-usda-2016.pdf. 49 Id. 50 Id. 51 Id. 52 Id. 53 42 U.S.C., Chapter 8A, Subchapter III, 1484 and 1486. 54 Tadlock Cowan, “An Overview of USDA Rural Development Programs,” Congressional research Service (Feb. 10, 2016)

http://nationalaglawcenter.org/wp-content/uploads/assets/crs/RL31837.pdf. 55 “Rural Housing Service: Opportunities Exist to Strengthen Farm Labor Housing Program Management and Oversight,”

Government Accountability Office (GAO), March 30, 2011 (available at https://www.gao.gov/assets/320/317162.html). 56 Results for the 2015 Multi-Family Housing Annual Fair Housing Occupancy Report, U.S. Department of Agriculture, January 22,

2016. Available at: http://www.rd.usda.gov/files/01-22-

16%20MFH%20Occupancy%20Report.pdf.ps://www.rd.usda.gov/files/01-22-16%20MFH%20Occupancy%20Report.pdf

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57 Id. 58 Id. 59 42 U.S.C. 1490. 60 “Results of the 2015 Multi-Family Housing Annual Fair Occupancy Report,” Rural Development Office of the Administrator, U.S.

Department of Agriculture (January 22, 2016) http://www.rd.usda.gov/files/01-22-16%20MFH%20Occupancy%20Report.pdf. 61 Id. 62 S. 2656, 114th Congress (2016). H.R. 5054, 114th Congress (2016). 63 “2017 Explanatory Note: Rural Housing Service,” U.S. Department of Agriculture (available at:

http://www.obpa.usda.gov/29rhs2017notes.pdf). 64 Consolidated appropriations Act, 2016 (H.R. 2029). 65 “2017 Explanatory Note: Rural Housing Service,” U.S. Department of Agriculture (available at:

http://www.obpa.usda.gov/29rhs2017notes.pdf). 66 “March 1, 2017, Pilot Program to Promote Non-Profit Participation in Transactions to Retain the Section 515 Portfolio,” U.S.

Department of Agriculture, September 16, 2016 (available at https://www.rd.usda.gov/files/RDUL-Nonprofit.pdf). 67 Id. 68 Id. 69 Id. 70 Id. 71 Id. 72 S. 2656, 114th Congress (2016). H.R. 5054, 114th Congress (2016). 73 S. 2656, 114th Congress (2016). 74 S. 2656, 114th Congress (2016). H.R. 5054, 114th Congress (2016). 75 S. 2656, 114th Congress (2016). 76 Id. 77 These case studies are also included in the whitepaper summarizing the conference proceedings. 78 The recommendations listed below are the same recommendations included in the whitepaper summarizing the conference

proceedings.

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